Men and younger workers see biggest falls in pay; low-paid see smaller falls than those on higher earnings

30 January 2015

The employment rate has returned to its pre-crisis level, but wages remain well below their 2008 peak. Median hourly wages, adjusted for (RPIJ) inflation, were still 4.7% lower in 2014 than in 2008 (according to the Annual Survey of Hours and Earnings).

New analysis by IFS researchers shows that these changes have affected different groups in quite different ways. Women, older workers and the low-paid have seen smaller real wage falls than men, younger workers and those on higher pay.

Key findings from this work, which forms part of the forthcoming IFS Green Budget 2015, which is produced in association with ICAEW and funded by the Nuffield Foundation, include:

Earnings inequality has narrowed. The 10th percentile of the hourly wage distribution (10% of employees earn less than this wage level) was 3.3% lower in real terms in 2014 than in 2008, while the 90th percentile was 6.4% lower. This is entirely driven by the pattern since 2011, when pay has fallen by more at higher points in the distribution.

Men have seen larger falls in pay than women. Real median hourly wages fell by 2.5% for women and by 7.3% for men between 2008 and 2014. Part of the explanation for this is that female employees are significantly more likely than men to work in the public sector and, so far, mean earnings falls have been smaller in the public sector.

Older workers have done much better than younger workers. For employees aged 60 and older, median real hourly pay in 2014 was back to its 2008 level, but for those aged 22-29 it was still 9% lower than in 2008.

Real median weekly earnings have fallen even more than hourly wages. By 2014, they were 5.9% below 2008 levels. This reflects sharp rises in the relative prevalence of part-time work, rises which are now just beginning to be unwound.

The proportion of part-time workers who say they work part-time because they cannot get more hours is almost double its pre-crisis level. In addition, the proportion of 16- to 64-year-olds in work and working at least as many hours as they want was 65.7% in the first three quarters of 2014: up significantly from 63.8% in 2012, but still 2.0 percentage points below its pre-crisis level.

Wages have fallen despite a continued trend towards a more highly educated and older workforce working in more skilled occupations. Trends in average earnings since the crisis, including over the past two years, would have looked even worse if the characteristics of the workforce had stayed the same.

It is true that individuals continuously in the same full-time job have seen their average real pay rise from year to year since 2011. There are at least two likely reasons: pay tends to increase with experience, and those in continuous employment are a select group (e.g. more highly educated) who may be likely to see steeper rises in pay as they age. Hence this measure of earnings growth is always likely to look relatively favourable, and there is little evidence that the degree to which it looks more favourable has changed since the crisis.

Real earnings growth appears to be returning. The most recent data (for September-November 2014) from the Average Weekly Earnings series show mean weekly earnings rising by 1.7% in nominal terms compared with the same months a year earlier (2.1% in the private sector). Together with rapid falls in inflation (RPIJ inflation fell to 1.0% in December 2014), this suggests the return of real earnings growth, and official forecasts suggest continued real earnings growth in 2015–16.

Jonathan Cribb, an author of the report and a Research Economist at IFS, said, “Almost all groups have seen real wages fall since the recession. The pay of young adults remains well below its pre-crisis level after particularly large falls between 2008 and 2011, while the average pay of those aged 60 and over has already recovered. Women have seen much smaller falls than men. Falls for the low-paid have been somewhat smaller than for those on higher pay, driven by trends since 2011.”